Morning Report: 22 February 2018

February 22, 2018

GBP Sterling had an eventful, narrative rich day yesterday, at first weakening on mixed labour market data, before enjoying a short lived rally in the afternoon on hawkish Monetary Policy Committee testimony to lawmakers. Labour market data for October to December showed the Unemployment Rate creeping up unexpectedly to 4.4%. It’s important to note however that total employment actually increased over the period, and the unemployment rate as a percentage only worsened due to the amount of economically inactive people. Average Earnings growth was in line with forecasts, at 2.5% year on year. Later in the afternoon MPC members remained hawkish in testimony to Parliament’s Treasury Select Committee, maintaining the general message from this month’s inflation report and giving sterling a short lived reprieve. This morning at 09:30 GMT updated Gross Domestic Product data will be released alongside indices for Services and Business Investment.

EUR The euro weakened to USD yesterday, after the morning’s data suggested that business optimism had edged off decade highs seen earlier in the year. Flash readings for European countries from the Markit Purchasing Managers’ Indices were generally lower than in January, but still pointed towards approximately 0.9% Gross Domestic Product growth in the first quarter. This morning’s data includes French Consumer Price Index inflation, which contracted 0.1% in January, German IFO Business Climate survey data at 09:00 GMT, and meeting minutes from the European Central Bank at 12:30.

USD USD strengthened against a number of major currencies yesterday, including sterling and the euro, as the release of meeting minutes from the Federal Reserve showed Fed decision makers increasingly confident about the path of the economy. The minutes stated that a “stronger outlook for economic growth” meant that further rate hikes would be appropriate. This is hardly new information for regular Fed watchers, but the minutes nonetheless allowed USD to continue to appreciate, after an initial wobble on release. Today at 13:30 GMT weekly Unemployment Claims will be released, followed at 15:00 by the CB Leading Index and a speech from the Fed’s Bill Dudley. Later in the afternoon the Atlanta Fed’s Raphael Bostic will speak at 17:10.

CAD The loonie weakened further against USD yesterday, aside from a brief burst of volatility around the release of Fed meeting minutes. The loonie data calendar will finally show signs of life today, with Retail Sales due for release at 13:30 alongside corporate profit data.

UK news

  • Reuters: UK improves offer to return devolved powers after Brexit, Scotland wants more. Britain’s government has made a “considerable offer” to ensure all devolved powers transfer back to Scotland, Wales and Northern Ireland after Brexit, it said on Thursday, but a Scottish minister said it was not enough.
  • Telegraph: Cabinet did not agree to Theresa May’s strategy for Brexit transition period, senior ministers say. The Cabinet did not agree to Theresa May’s negotiating strategy for the transition period after Brexit before it was sent to EU nations, senior ministers have told The Telegraph.

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